For a nonresident alien who dies owning US situs assets, it's vital to identify the property's value and whether or not it is subject to estate tax. This requires extensive investigation into the underlying assets and their location, as well as properly completing and submitting Form 706-NA.

In addition, executors will also need to correctly claim any appropriate treaty relief to avoid double taxation.

Domiciliary Status

Domiciliary status is an important legal term that refers to a person’s primary home. It is also a significant factor in immigration law. Whether a person is a resident or non-resident for tax purposes depends on the state in which their primary home is located.

The domiciliary status of a foreign national with US status is an important issue for estate planners and tax practitioners. When a non-US citizen passes away, their estate must file Form 706-NA to report and pay the estate tax on their assets that are held in the United States.

Determining a foreign national’s domiciliary status can be difficult because many factors are involved. These include where the taxpayer lives, their age, their family situation and their health condition.

Fortunately, there are some simple rules that can help you determine the domiciliary status of a foreign citizen with US status. First, you need to consider the length of time that the individual has lived in their present home.

If the individual has only been in one home for a short period of time, then it is relatively easy to figure out their domiciliary status. However, if the individual has been in multiple homes, has traveled a lot or has been in the military, it can be a bit more challenging to establish their domiciliary status.

Furthermore, if the individual has moved to a foreign country on a work visa, it is often difficult to prove that their domicile changed because their work visa is conditional. This means that the individual’s current residency in their new country is merely temporary.

In order to establish a domiciliary status in the United States, the individual must show that they have an intent to stay for an indefinite period of time. This can be accomplished by a variety of different methods, including legal documents and authorized registration under state laws.

Another method is for the individual to establish their domiciliary status by establishing a permanent residence in the United States. This can be done by either owning a home in the United States or leasing a property here for a long period of time.

Domiciliary Assets

If a foreign national with US status dies, the estate must file Form 706-NA: United States Estate (and Generation-Skipping Transfer) Tax Return within nine months of the death. The IRS requires this form for noncitizens with US situs assets who own more than $60,000 in total worth at the time of their death.

When filing Form 706-NA, you must include all property in the gross estate that has a situs in the United States or is otherwise taxable by the IRS. This includes all real and personal property owned by the decedent or the deceased individual’s spouse at their death, including all of the property transferred to them during their lifetimes as well as any gifts that were made during their lifetime.

In addition, you must include any income a decedent received during their lifetime that was not included in the gross estate. This income may be from foreign sources or from the United States.

You must also include any debts that the decedent owed at their death. This includes unpaid mortgages or liens, funeral expenses, administration fees, and uncompensated losses on property sold during their lifetimes.

Once you have determined the value of the estate and any deductions that can be claimed, you must calculate the total taxable estate. This is the sum of all of the taxable items in your client’s gross estate, less any charitable or marital deductions that were allowed, as well as any other adjustments to your client’s estate.

If you are unable to complete the return in time, you can apply for an extension of time. You must do so within 9 months after the date of death and attach a written statement of explanation as instructed.

In addition to Form 706-NA, you must also file an income tax return. You must do so for all U.S. citizens or residents, as well as any other noncitizens with US status. You must do so on a timely basis, or your client’s estate may face fines and penalties. For more information on filing returns, see the IRS website.

Domiciliary Deductions

Form 706-NA is a tax return used to calculate the federal estate tax liability for decedents who are not citizens or residents of the United States. It is distributed by the Internal Revenue Service (IRS). This form must be filed by the executor of a decedent's estate nine months after the date of death, if the gross estate exceeds the filing threshold for the year of the death and the adjusted taxable gifts exceeded the applicable exclusion amount.

Non-resident aliens have a significant tax responsibilities that are complicated by various laws and regulations. They must file tax returns on a timely basis and must comply with all U.S. taxes unless they have been granted a special status or have a tax treaty that allows them to exclude certain amounts from income.

As a foreign national with US status, you have a number of options to reduce your taxable income, including the possibility of claiming a domiciliary deduction. Domiciliary deductions can be particularly beneficial to non-US citizens or lawful permanent residents who have been reclassified from non-resident to resident for tax purposes under the substantial presence test.

The substantial presence test requires that an individual be physically present in the United States for a minimum of 183 days during the year. The IRS determines an individual's presence in the United States based on many factors, including their home, belongings, and family.

There are several exceptions to the substantial presence test, including the closer connection rule. This exception is available to foreign students who are studying in the United States.

If you are a foreign student who has been reclassified from non-resident alien to resident, you may be eligible for the foreign housing exclusion, which is a tax-free allowance for foreign earned income. The amount of this exemption can vary based on the location in which you incur housing expenses.

To claim a foreign housing deduction, you must file Form 2555 and follow the instructions for that form. You must also include your total foreign earned income and the corresponding amounts you have claimed as a foreign housing exclusion on your annual tax return. This is an important step for non-US citizens or lawful permanent residents to take because it can help you avoid paying additional tax when you leave the United States.

Exempt Assets

For estates of nonresident alien decedents, the executors will use Form 706-NA, United States Estate (and Generation-Skipping Transfer) Tax Return, to determine the estate tax and generation-skipping transfer tax (GSTT) liability. The form is a deceptively simple two-page document that can be challenging to complete.

There are also numerous supporting documents that must be submitted along with the Form 706-NA. These include a certified copy of the will and all schedules that are associated with the will, copies of invoices from the accountants, lawyers, undertakers and other expenses incurred in the administration of the estate.

The US has many tax treaties with foreign countries, designed to eliminate double taxation. Using these treaties, it may be possible to have the assets of a nonresident alien decedent treated as situated outside of the U.S.

However, a nonresident who owns US situs assets will still need to file a US estate tax return, even though the US has an exemption amount that exceeds $60,000 for individual taxpayers. This is because the IRS considers the value of the US assets to be part of the decedent’s taxable estate under section 2014.

While these exempt assets are important to ensure that an estate can avoid an estate tax liability, they are not sufficient alone. The nonresident must also have a properly drafted and coordinated will in place to minimize or eliminate his or her estate tax exposure.

If a nonresident alien dies and owns US assets, the estate must file an estate tax return within nine months of the date of death. If the representative of the estate cannot submit the return by the due date, an extension of time to file can be requested using Form 4768.

In addition to filing a return, the representative must make sure that all taxes are paid within nine months after the decedent’s death. Failure to do so will result in penalties and interest.

Another strategy to avoid the estate tax is to negotiate with a mortgage lender for a non-recourse loan. A non-recourse loan is a type of debt with respect to which the lender has a lien only on the asset that secures the debt.